SOTTO,PIA C.

JD II
October 6, 2017

The International Monetary Fund: Its History, Contribution and Purpose

I. Introduction and Brief History of IMF

In the 1930s, the whole world suffered from the Great Depression. Aside from

that, World War 1 and 2 were also experienced by the people. Due to these unfortunate

events, the global economic system went spiralling down. During the World War 2, the

Anglo-American wanted to solve the problem regarding the financial stability and

international finances so as to prevent the further collapsing of the said global economic

system. Thus, one of the ideal solutions was to create the International Monetary Fund.

The founding fathers of the International Monetary Fund, or more commonly known as

the Fund, are John Maynard Keynes and Harry Dexter White. It was in July 1944,

during a United Nations conference held at Bretton Woods, New Hampshire, United

States, that the idea of creating the Fund was first conceived. By December 27, 1945

The International Monetary Fund finally came into existence. The Articles of Agreement

was signed by 29 member countries; Belgium, China, France and Philippines are some

of the original members of the twenty-nine countries which joined the organization of

International Monetary Fund. The following year, the first meeting was convened by the

Board of Governors in Savannah, State of Georgia, United States. In the said meeting,

the objectives were: 1.) To conduct the election for the executive directors; 2.) To draft

the bylaws; and 3.) To decide where the permanent location of the IMFs headquarters

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should be.1 The Board of Directors came into a decision that Washington D.C, will serve

as the location of the headquarters of the International Monetary Fund. On its website,

there was a brief description of International Monetary Fund; it describes the Fund as

an organization of 189 countries, working to foster global monetary cooperation, secure

financial stability, facilitate international trade, promote high employment and

sustainable economic growth, and of course, to reduce poverty around the world.2 On

March 1, 1947, the financial operations of the IMF finally started its operation; In fact it

was the country of France which was the first to borrow from the International Monetary

Fund.

The IMF's primary purpose is to ensure the stability of the international monetary

system, specifically the system of exchange rates and international payments that

enables countries, as well as its citizens to transact with each other.3 In 2012, the

Fund's mandate was updated to include all macroeconomic and financial sector issues

that bear on global stability. The aims of IMF can be divided into five points: First, to

promote international monetary cooperation; second, to facilitate the expansion and

balanced growth of international trade; third, to promote exchange stability; fourth, to

assist in the establishment of a multilateral system of payments; and fifth, to make

resources available, with adequate safeguards, to members experiencing balance of

payments difficulties.

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(August 14, 2014). History of the International Monetary Fund. Retrieved from http://www.50years.org/history-
of-imf/
2
About the IMF. Retrieved from http://www.imf.org/en/About
3
(August 14, 2014). History of the International Monetary Fund. Retrieved from http://www.50years.org/history-
of-imf/

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 II. Membership Process in International Monetary Fund

In order for one country to be a member of the IMF, the interested country must

firs apply to be a member of the Fund. Thereafter applying, the applicant country is

required to deposit a specific amount of money based on their economic size as their

membership or subscription fee. They also need to stipulate the amount of money that

they are to contribute. Aside from monetary requirements, they are also obliged to

adhere to the Code of Conduct of the International Monetary Fund. Those who become

official members of the IMF not only have access to the broad range of services

provided by the Fund, but also to the economic records of other member countries.4

III. IMFs Work

The International Monetary Funds core is to ensure the stability of the international

monetary system. It does so in three ways: First, by keeping track of the global

economy and the economies of member countries; Second, by lending to countries with

balance of payments difficulties; and Third, by giving practical help to members.

1. Surveillance

The IMF oversees the international monetary system and monitors the economic and

financial policies of its 189 member countries. As part of this process, which takes place

both at the global level and in individual countries, the IMF highlights possible risks to

stability and advises on needed policy adjustments.

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(August 14, 2014). History of the International Monetary Fund. Retrieved from http://www.50years.org/history-
of-imf/

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 2. Lending

A core responsibility of the IMF is to provide loans to member countries experiencing

actual or potential balance of payments problems. This financial assistance enables

countries to rebuild their international reserves, stabilize their currencies, continue

paying for imports, and restore conditions for strong economic growth, while

undertaking policies to correct underlying problems. Unlike development banks, the IMF

does not lend for specific projects.

3. Capacity Development

IMF capacity developmenttechnical assistance and traininghelps member

countries design and implement economic policies that foster stability and growth by

strengthening their institutional capacity and skills. The IMF seeks to build on synergies

between technical assistance and training to maximize their effectiveness.5

IV. IMFs Role

1. To focus on its core macroeconomic and financial areas of responsibility;

2. To work in a complementary fashion with other institutions established;

3. To collect and allocate reserves;

4. To render advise to member countries on their international monetary affairs;

5. To promote research in various areas of international and monetary economics;

6. To provide a forum for discussion and consultation among member countries;

7. To be the center of competence in terms of global economic system.

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About the IMF. Retrieved from http://www.imf.org/en/About

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 V. IMFs Organization and Finances

The IMF has a management team and 17 departments that carry out its country, policy,

analytical, and technical work. One department is charged with managing the IMFs

resources. This section also explains where the IMF gets its resources and how they

are used.

1. Management

The IMF has a Managing Director, who is head of the staff and Chairperson of the

Executive Board. The Managing Director is appointed by the Executive Board for a

renewable term of five years and is assisted by a First Deputy Managing Director and

three Deputy Managing Directors.

2. Staff

The IMFs employees come from all over the world; they are responsible to the IMF and

not to the authorities of the countries of which they are citizens. The IMF staff is

organized mainly into area; functional; and information, liaison, and support

responsibilities.

3. IMF resources

Most resources for IMF loans are provided by member countries, primarily through their

payment of quotas.

4. Quotas

Quota subscriptions are a central component of the IMFs financial resources. Each

member country of the IMF is assigned a quota, based broadly on its relative position in

the world economy.

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 5. Special Drawing Rights (SDR)

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its

member countries official reserves.

6. Gold

Gold remains an important asset in the reserve holdings of several countries, and the

International Monetary Fund is still one of the worlds largest official holders of gold.

7. Borrowing arrangements

While quota subscriptions of member countries are the IMF's main source of financing,

the Fund can supplement its quota resources through borrowing if it believes that they

might fall short of members' needs.6

Otherwise stated, most resources for the International Monetary Fund loans are

provided by member countries, primarily through their payment of quotas. Multilateral

and bilateral borrowing work also work as an alternative way of providing a temporary

supplement to quota resources. These temporary resources played a critical role in

enabling the IMF to provide exceptional financial support to its member countries during

the global economic crisis. Concessional lending and debt relief for low-income

countries are financed through separate contribution-based trust funds.

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About the IMF. Retrieved from http://www.imf.org/en/About

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 VI. IMFs Governance

1. Governance Structure

The IMF has evolved along with the global economy throughout its 70-year history,

allowing the organization to retain a central role within the international financial

architecture.

2. Country Representation

Unlike the General Assembly of the United Nations, where each country has one

vote, decision making at the IMF was designed to reflect the relative positions of its

member countries in the global economy. The IMF continues to undertake reforms to

ensure that its governance structure adequately reflects fundamental changes taking

place in the world economy.

3. Accountability

Created in 1945, the IMF is governed by and accountable to the 189 countries that

make up its near-global membership.

4. Corporate Responsibility

The Fund actively promotes good governance within its own organization.

In summary, the organization of International Monetary Fund is composed of the

International Monetary and Financial Committee, Board of Governors, under the said

Board are the Executive Board, Managing Directors and Deputy Managing Directors. In

line with the Committee and Board is the Joint IMF-World Bank Development

Committee.7

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About the IMF. Retrieved from http://www.imf.org/en/About

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 VII. International Monetary Fund in Partnership With Other International

Organizations

The IMF collaborates with many international organizations and groups; namely,

the World Bank, regional development banks, the World Trade Organization (WTO), UN

agencies, and other international bodies. While all of these organizations are involved in

global economic issues, each has its own unique areas of responsibility and

specialization. The IMF also works closely with the Group of Twenty (G-20)

industrialized and emerging market economies and interacts with think tanks, civil

society, and the media on a daily basis.

As with regard to IMF working with the World Bank, it is clear to see that the IMF

and the World Bank are different, but complement each other's work. While the IMF's

focus is chiefly on macroeconomic and financial sector issues, the World Bank is

concerned mainly with longer-term development and poverty reduction. Its loans finance

infrastructure projects, the reform of particular sectors of the economy, and broader

structural reforms. IMF loans assist countries in continuing to pay for imports, stabilizing

their currencies, and restoring conditions for strong economic growth. Countries must

join the IMF to be eligible for World Bank membership. Given the World Bank's focus on

antipoverty issues, the IMF collaborates closely with the Bank in the area of poverty

reduction. Other areas of collaboration include assessments of member countries'

financial sectors, development of standards and codes, and improvement of the quality,

availability, and coverage of data on external debt. Aside from that, the IMF cooperates

on financial stability, banking supervision and trade by being a member of the

Switzerland-based Financial Stability Board, which brings together government officials

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responsible for financial stability in the major international financial centers, international

regulatory and supervisory bodies, committees of central bank experts, and

international financial institutions. It also works with standard-setting bodies such as the

Basel Committee on Banking Supervision and the International Association of Insurance

Supervisors. The IMF has observer status at formal meetings of the World Trade

Organization (WTO). The IMF's determination of a country's balance of payments

situation plays a considerable part in the WTO's assessment of trade restrictions

applied in the event of balances of payments difficulties. The IMF is also involved in the

WTO-led Integrated Framework for Trade-Related Technical Assistance to Least

Developed Countries, and IMF staff contribute to the work of the WTO Working Group

on Trade, Debt, and Finance. The International Monetary Fund also established a

relationship with the United Nations; the IMF has a Special Representative to the United

Nations, located at the UN Headquarters in New York. On September 17, 1947 the

Agreement entered into by IMF and UN was approved by the Board of Governors of the

Fund and by the General Assembly of the United Nations on November 15, 1947. The

Agreement came into force on November 15, 1947. Collaboration between the IMF and

the UN covers several areas of mutual interest, including cooperation on tax issues and

statistical services of the two organizations, as well as reciprocal attendance and

participation at regular meetings and specific conferences and events. In recent years,

the IMF has worked with the International Labor Office on issues related to employment,

as well as social protection floors; the UN Children's Fund on fiscal issues and social

policy; the UN Environment Program on the green economy; and the World Food

Program on social safety nets and early assessments of vulnerability. The IMF has also

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been working closely with the Group of Twenty or known as G-20 industrialized and

emerging market economies. During the global financial crisis, collective action by the

G-20 was critical for avoiding even greater economic difficulties, and in subsequent

meetings the G-20 leaders have continued to reaffirm their commitment to reinvigorate

economic growth. The IMF provides analysis on global economic conditions and on how

G-20 members' policies fit togetherand whether, collectively, they can achieve the

Group's goals. One of the IMF's mandate also includes contributing to the promotion

and maintenance of high levels of employment and real incomes through the expansion

and balanced growth of international trade. Given the importance of employment for

sustainable and inclusive growth, IMF-supported programs often contain

recommendations pertaining to the labor market. That said, labor market policies are

not a core area of IMF expertise. For this reason, the Fund works with other

international, regional, and local organizations in this important area. We have an active

partnership with the International Labor Organization (ILO), with whom we have been

pooling expertise to better understand the impact of macroeconomic policies on job

creation. The IMF also liaises regularly with the Iternational Trade Union Confederation,

and its affiliates. Finally, IMF missions to member countries meet regularly with trade

union representatives to gain a better understanding of and exchange views on national

labor market dynamics. Lastly, the IMF also engages on a regular basis with the

academic community, civil society organizations (CSOs), and the media. IMF staff at all

levels frequently meet with members of the academic community to exchange ideas

and receive new input. The IMF also has an active outreach program involving CSOs.

IMF management and senior staff communicate with the media on a daily basis.

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Additionally, a biweekly press briefing is held at the IMF headquarters, during which a

spokesperson takes live questions from journalist or other media men.8

VIII. Personal Insight

With all honesty, I only heard and learned of the existence of International

Monetary Fund when Mr. David Padilla, our second quarter professor in Public

International Law, designated me and my other groupmates to research and make a

presentation to be reported in class. While researching, I have got to learn that creation

the International Monetary Fund is very important, especially in maintaining the global

economic stability. Since its establishment, the International Monetary Fund has been

assisting numerous countries around the world. The Fund has been the lifeline of the

global economy, and assists countries during financial emergencies. It has been

religiously complying with its mission and vision of helping countries which experience

monetary problems. Not only that, the International Monetary Fund encourages

international trade, which gives opportunities for these member countries to establish

friendly relations with one another that will boost more the economic and financial

systems of these countries. However, it is important to note that the IMF is not an aid

institution that subsidizes development projects in emerging economies. But, it is

committed to the reduction of global poverty. It encourages on its member countries

transparent policies, economic stability, honest government, and to abide with the rule

of law. With this vision, the International Monetary Fund is convinced that only under

these conditions will economies grow and the needs of the poor be met. Under the

proper safeguards, the IMF lends to all member countries, but only to meet current
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About the IMF. Retrieved from http://www.imf.org/en/About

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international obligations. For poor countries, it makes such loans at low interest rates

and with a longer-than-normal pay-back period. Cooperation of the IMF members

regarding economic policies and with proper coordination in solving economic and

financial hindrances, the International Monetary Fund played a very important role in the

comeback of the world economy after its downfall during the Great Depression and

World War 1 and 2. Although the progress may be slow, or may not be as perfect as

what was envisioned during the first meeting of the members of the International

Monetary Fund back in 1946, still, it cannot be denied that the standard of living have

been improving all over the world as compared before. With the establishment of the

International Monetary Fund, the world has become more prepared to enter into the

challenging years ahead; although not entirely confident that no problems will arise, but

hopeful, that this time, they have a solution. As long as member countries continue their

cooperation and participation on economic, financial and monetary policies, this will help

us surpass the challenges of reducing poverty and achieve opportunities of globalism

and prosperity and growth in our global economic system.

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